Tourist Stocks Drive Longest Rally Since April: China Overnight

Oct. 15 (Bloomberg) -- Chinese equities in New York gained
for a third week, the longest rally in the benchmark index since
April, on speculation data due this week will signal growth in
the world’s second-largest economy is reviving.

The Bloomberg China-US Equity Index of the most-traded
Chinese companies in the U.S. climbed 0.7 percent to 93.75 last
week. Guangshen Railway Co. surged the most in a year after the
government bolstered rail investment. Home Inns & Hotels
Management Inc. and China Southern Airlines Co. jumped as data
showed tourism during the Golden Week holiday expanded. Casino
operator Melco Crown Entertainment Ltd. posted the biggest
premium over its Hong Kong stock in two weeks.

While economists surveyed by Bloomberg predict data due on
Oct. 18 will show growth in the three months to September slowed
for a seventh quarter, policy makers are more positive. The
economy may expand 7.8 percent this year, People’s Bank of China
Deputy Governor Yi Gang said in Tokyo on Oct. 12, compared with
the government target of 7.5 percent. Prospects the nation’s new
leaders, to be nominated on Nov. 8, will act to stimulate the
economy is also fueling stock gains, according to Auerbach
Grayson & Co.

“The word on the street about China’s September data is
that they might be stronger than expected,” Erik Lam, director
of Asian equity sales at Auerbach Grayson in New York, said by
phone Oct. 12. “All the expectations are so low and that if the
numbers get beat we’ll see a nice rally in the stocks. People
are thinking the incoming leadership team will demonstrate clear
commitment to reform and focus on quality of growth versus
quantity.”

China ETF Surges

The iShares FTSE China 25 Index Fund, the biggest Chinese
exchange-traded fund in the U.S., rose 2.9 percent last week to
a five-month high of $36.38. The Standard & Poor’s 500 Index
dropped 2.2 percent during the period to 1,428.59, the biggest
loss in four months.

China’s economy probably expanded 7.4 percent in the three
months ended Sept. 30, according to the median estimate of 37
analysts surveyed by Bloomberg. Reports on inflation and
industrial production in September as well as property prices
are also scheduled to be issued this week.

The AlphaShares Chinese Volatility Index, derived from
options on companies trading in Hong Kong, rose 4.6 percent last
week to 18.48. It was 15 percent higher than the Chicago Board
Options Exchange Volatility Index, narrowing from 23 percent a
week earlier, indicating options dealers are charging a lower
premium to protect against losses in Chinese companies relative
to U.S. peers.

Hong Kong Jump

Stock prices may be already be anticipating positive moves
in the economy, Gustavo Galindo, who helps manage $8 billion in
emerging market assets at Russell Investments in New York, said
by phone on Oct. 12. “China might give us some positive
surprises over the next one to three quarters,” he said.

The Shanghai Composite Index added 0.9 percent last week to
2,104.93. The Hang Seng China Enterprises Index of Chinese
companies traded in Hong Kong surged 3.8 percent to 10,345.28,
the strongest level in five months and the third straight weekly
advance.

Guangshen Railway, a Shenzhen-based operator of trains in
China’s Guangdong province, gained 7 percent last week to
$17.34, the biggest advance since October 2011.

China plans to ramp up work on public transport
infrastructure and will offer subsidies and preferential tax
treatment to companies in the industry, the government said on
Oct. 10 on its website. The Railways Ministry will increase
spending on railroad construction to 516 billion yuan ($82
billion) this year, from 496 billion yuan reported a month ago,
according to a bond prospectus released on Oct. 10.

Tourism Revenue

Home Inns, the Shanghai-based operator of China’s largest
budget hotel chain, posted a 4.8 percent gain last week to a
seven-month high of $27.55, capping three weeks of advances.

China Southern, Asia’s biggest airline by passenger
numbers, rallied 4.1 percent in a fourth weekly gain to $23.88,
the longest stretch of increases for the company since July.

Tourism revenue at China’s major attractions in the eight-day national holiday that started Sept. 30 increased 25 percent
from the same period a year ago to 1.77 billion yuan, the
industry regulator said on its website on Oct. 7. The number of
tourists during the so-called Golden Week climbed 21 percent to
34.2 million.

Railway passenger traffic during the period rose 13 percent
from last year and flight passenger traffic surged 32 percent,
according to data from rail and airline regulators.

Chalco Share Sale

Melco Crown, a Hong Kong-based company that runs casinos in
Macau, added 3 percent last week to $13.60. Melco’s American
depositary receipts, each representing three underlying shares
in the company, traded 2.5 percent above its Hong Kong stock,
the widest premium since Sept. 28.

ADRs of Aluminum Corp. of China, the nation’s biggest maker
of the light metal, gained 1.8 percent last week, a second week
of advances.

The Beijing-based company got approval from China’s state-owned Assets Supervision and Administration Commission for a
private share sale, according to a filing to the Hong Kong Stock
Exchange on Oct. 12.

JPMorgan Chase & Co. anticipates that investment-banking
fees from U.S.-listed Chinese companies will rise this year as
they make more acquisitions.

Revenue from mergers advisory, acquisition financing and
convertible bond underwriting for Chinese companies trading in
New York may triple from last year, said Brian Gu, JPMorgan’s
head of corporate finance for China. The contribution from
Chinese stocks listed in the U.S. to JPMorgan investment banking
revenue in China will probably more than double from where it
was over the last two years, Gu said.

Short Sellers ‘Taking Advantage’

Lihua International Inc., a Danyang, China-based cable and
wire maker, rose 1.4 percent last week to $3.67 in New York,
trimming its 23 percent slump this year.

The decline in 2012 is a result of a “handful of
fraudulent companies” souring sentiment toward U.S.-listed
Chinese stocks, Jianhua Zhu, the chairman and chief executive
officer, said in an e-mailed response to questions Oct. 12.
Short sellers, people that bet on stock declines, “taking
advantage” of that situation is also overshadowing Lihua’s
“strong fundamentals,” he said.

Short sellers such as Muddy Waters LLC have alleged that
Chinese U.S.-listed companies including Focus Media Holding Ltd.
and New Oriental Education & Technology Group Inc. have misled
the market about their businesses.

Should Buy Shares

Lihua plans to use cash “conservatively and focus on our
growth needs,” Chairman Zhu said. The company has a market
capitalization of $110 million and had $125 million of cash and
near cash items on its balance sheet at the end of the second
quarter, data compiled by Bloomberg show.

Lihua should use its cash to buy back shares and pay
dividends, Alex Orozco, a research analyst at Tocqueville Asset
Management LP in New York, said by phone. Tocqueville held about
2.5 percent of Lihua at the end of the second quarter, he said.

Zhu declined to comment on the possibility of dividend
payouts or a share sale.

New Oriental filed an annual report for its 2012 fiscal
year ended May 31 to the U.S. securities regulator on Oct. 12
after markets closed.

The company climbed 2.5 percent last week to $17.14,
extending a three-week rally. The stock reached $17.95 on Oct.
11, the highest level since July.